The IRS Cannot Take These Types of Income

Intelligent taxpayers understand that they should not pay the IRS any more than what they owe in taxes. They are aware that getting a huge refund every year shows that they overpaid and essentially loaned money to the government completely interest-free. And as it may lead to IRS problems, you also don't want to underpay and owe the government money. But there are various income types that the government can't collect taxes on legally, and most people don't know that. As a matter of fact, not many taxpayers are aware that there are ways to keep the IRS at bay.

Since tax law doesn't allow it, the IRS cannot tax certain types of income. You can keep your money if you know what the IRS can't tax you with, but to prevent tax problems, you should do it right.

One income is tax-free investment instruments. These municipal bonds, or state-issued bonds, are free from federal taxes. The value of these bonds increase as your overall income increases, meaning their tax benefit increases when your tax rate goes up.

Money made from charging fees in a car pool is a source of income that cannot be taxed. If you happen to drive to work each day in a car pool and collect from your passengers a small payment, that money can be excluded from your reported earnings without an IRS issue.

Selling your house is another income source that is excluded from taxes. You can exclude up to $250,000 if you sell your house, and if you file a joint return with your spouse, $500,000. This exclusion can be claimed every 2 years. A partial exclusion can also be claimed if you sell your house after less than 2 years. There are various restrictions, so it's advised to consult a tax professional to ensure that you're doing this correctly.

Most people believe that when they get a raise at work, they can only have it in the form of more money in their paychecks. You may actually be able to ask your employer for a more unique way of a raise, depending on your situation. As an example, you can save money as it's impossible for the IRS to tax your raise if you get your employer to cover the cost of a better insurance policy instead. Also, as opposed to getting your employer cover the payment for you, you can make payments with after-tax money by choosing a higher healthcare plan. You won't have to deal with possible IRS issues and you gain in numerous ways if you select an option such as this.